Okmulgee Window Glass Co. v. Frink

• Decision Date: 25 April 1918
• Docket Number: 5002.
• Citation: 260 F. 159
• Parties: OKMULGEE WINDOW GLASS CO. v. FRINK. [*]
• Court: U.S. Court of Appeals — Eighth Circuit

260 F. 159

OKMULGEE WINDOW GLASS CO. v. FRINK. ^[*]

No. 5002.

United States Court of Appeals, Eighth Circuit.

April 25, 1918

On Rehearing, September 12, 1919.

William M. Matthews, of Okmulgee, Okl., for appellant.

Frederic O. Berge, of Kansas City, Mo. (N. A. Gibson and J. L. Hull both of Muskogee, Okl., and E. N. Huggins, of Columbus, Ohio on the brief), for appellee.

Before SANBORN, CARLAND, and STONE, Circuit Judges.

STONE Circuit Judge.

This is a suit in equity against the Okmulgee Window Glass Company, as the alleged successor of the Coffeyville Window Glass Company, to recover minimum patent royalties under a contract between the Coffeyville Company and appellee, and to have the same 'declared to be a lien upon the property and assets of the defendant company at least to the extent of the value of the assets conveyed to it by the Coffeyville Window Glass Company, and that it be ordered satisfied out of the property and assets of the said defendant,' and for general relief. Defendant appeals from a decree for $90,560, which was declared to be a lien upon the property and assets of the defendant.

The assigned errors pressed upon this court are: (a) That the appellee neither pleaded nor proved issue and delivery of licenses as required by the contract, but breached the contract by failing to so issue and deliver them, which was a condition precedent to royalty payments; (b) that there was no consolidation, merger, or continuation of the two companies; (c) that no personal judgment should have been rendered against appellant; (d) that the dissolution of the Coffeyville Company terminated the contract; and (e) that the assets acquired by appellant from the Coffeyville Company did not exceed the liabilities of that company assumed and theretofore paid by appellant.

(a) The contract provided for the issuance and delivery, after the payment of $4,500 and 'upon the request of the licensee,' of licenses of a form attached to the contract. The contract in another clause provided that appellee should place the licenses in escrow in some bank, designated by him, under instruction for their delivery upon payment of the above sum. Appellee executed the licenses but did not deliver them to the licensee or in escrow. The reasons for this failure to deliver were as follows: There arose some question between the parties to the contract as to whether the date thereof should be altered. During this uncertainty appellee wrote to the president of the Coffeyville Company:

'With the exception of filling in the date of the agreement, the licenses are ready for filing at the local bank, and upon receipt of your advices, the proper date will be inserted and papers placed in escrow.'

In answer to this the president wrote:

'I note that you say with the exception of the date these agreements are ready for filing, at the local bank and upon receipt of our advice the proper date will be inserted and the papers placed in escrow. Nod (now?) I do not see a particle of harm in changing these dates; but as I stated above, do not want to do so on my own authority, without first consulting the others, which I will do now right away and if you are still waiting on me wish you would advise and I will try and give you the information now within the next week or ten days.'

To this appellee replied:

'As to the agreement, I appreciate your position relative to this, and think that your consideration of the same is perfectly proper, and inasmuch as there is no particular hurry as to the change in the date of the agreement, this can stand until it is convenient for you to take it up with your colleagues. My only concern relative to it is that it should be thoroughly understood between us, so that you would not, through any misunderstanding, anticipate that there was anything irregular in my not having placed in escrow the patent licenses, as is called for by the agreement. However, I am perfectly willing to issue these licenses, eliminating the date, and give them to you at once, should you so desire, but believe that you have sufficient confidence in me, inasmuch as it is but a minor detail at the most, and we can allow the matter to rest until we have another meeting, at which time we can fill in the dates in these licenses (which are already drawn) and I can then hand them to you complete, for so far as the licenses are concerned, the agreement covers all points as to our respective premises and obligations, and the licenses are of no particular value to you, only in the event that you wish to negotiate with other parties for sublicensing the patents, in which event I will undertake to see that you have the proper authority and credentials to enable you to do so for all territory called for in the agreement.'

This status seems to have been understood and acquiesced in by the Coffeyville Company. For months afterwards the correspondence of the parties to the contract shows clearly that they regarded the contract in full force. If the issuance and delivery of the licenses was a condition precedent, it was waived. But it may well be doubted whether such importance is, under the contract, to be accorded them. The first paragraph of the agreement states that the appellee 'proposes and agrees to issue licenses under the following patents and pending applications' (setting them out by number and description). The second paragraph provides that:

'The licensor hereby grants, and the licensee hereby accepts, the exclusive right within the territory of the United States west and south of the Mississippi river and to and including the Pacific Coast, to use the inventions set forth in the above identified patents and applications, subject to the terms of this agreement, and licenses under the several patents and applications shall be granted for such territory subject to the conditions set forth herein.'

It would seem that the licenses could add nothing to the above positive grant of use of the inventions. A closely parallel case is American Paper Bag Co. v. Van Nortwick, 52 F. 753, 757, 3 C.C.A. 274, decided by the Court of Appeals for the Seventh Circuit; Mr. Justice Harlan participating. This contention of appellant is denied.

(b) We have carefully examined the entire evidence, and are convinced that the Coffeyville Company was merged in and absorbed by appellant, which is really nothing more than a continuation of the Coffeyville Company. The arrangement was as follows: The organization by the same individuals of a new company (appellant), with the same amount of capital stock, to be paid for by the assets of the old company (Coffeyville Company), for the sole purpose of continuing the same character of business with the assets of the old company; a transfer to the appellant of the assets of the old company; assumption of the indebtedness of that company by appellant; exchange of stock, share for share. The legal result of such transactions is to impose upon appellant liability, up to the value of such assets, to the creditors of the Coffeyville Company. Kansas City S.R. Co. v. Guardian Trust Co., 240 U.S. 166, 36 Sup.Ct. 334, 60 L.Ed. 579, affirming 210 F. 696, 127 C.C.A. 184; Northern Pac. R. Co. v. Boyd, 228 U.S. 482, 33 Sup.Ct. 554, 57 L.Ed. 931; Fogg v. Blair, 133 U.S. 534, 541, 10 Sup.Ct. 338, 33 L.Ed. 721; Union Pac. R. Co. v. McAlpine, 129 U.S. 305, 314, 9 Sup.Ct. 286, 32 L.Ed. 673; Railroad v. Howard, 7 Wall. 392, 19 L.Ed. 117; Jennings Neff & Co. v. Ice Co., 128 Tenn. 231, 159 S.W. 1088, 47 L.R.A. (N.S.) 1058. Also see 7 R.C.L. 182, with citations, and extensive notes to 11 L.R.A. (N.S.) 1119, 32 L.R.A. (N.S.) 616, and 47 L.R.A. (N.S.) 1058.

(c) Appellant objects to the personal judgment against it, contending that judgment should first have been secured against the Coffeyville Company, and then after failure of execution the enforcement of an equitable lien might have gone against it. The rule here invoked is not without recognized exceptions. Where the new corporation is in its essence but a continuation of the activities and interests of the old company, which retains simply its franchise as a corporation, thus becoming practically extinct as an active entity, direct recovery is allowable. See Central of Georgia R. Co. v. Paul, 93 F. 878, 35 C.C.A. 639; Hibernia Ins. Co. v. Transp. Co. (C.C.) 10 F. 596; Id. (C.C.) 13 F. 516; Brum v. Merchants' Mutual Ins. Co. (C.C.) 16 F. 140; Harrison v. Union Pac. R. Co. (C.C.) 13 F. 522; Altoona v. Richardson, 81 Kan. 717, 106 P. 1025, 26 L.R.A. (N.S.) 651; Douglas Printing Co. v. Over, 69 Neb. 320, 95 N.W. 656; Friedenwald Co. v. Tobacco Works, 117 N.C. 544, 23 S.E. 490; Morrison v. Amer. Snuff Co., 79 Miss. 330, 30 So. 723, 89 Am.St.Rep. 598; Howe v. Robinson, 20 Fla. 352, 355. Where it can be thus seen in advance that a judgment against the old company would require the further proceeding against the new company to secure any satisfaction, equity will avoid this useless multiplicity of suits and circuity of action by permitting a direct proceeding. Central Improvement Co. v. Cambria Steel Co., 210 F. 696, 705, 127 C.C.A. 184. Here, however, the old company was legally dissolved shortly after appellant took over its business and before this suit was brought. Nor could its assets have been followed into the hands of the former stockholders, because it had none to distribute at dissolution and the shares in appellant which were to have been given these stockholders have never been issued to them-- in fact, appellant has refused to issue them, and is now being sued therefor. To deny a direct suit would be to deny all remedy, and this equity can and will avoid. Curran v. Arkansas, 15 How. 304, 310, 311, 312, 14 L.Ed. 705.

(d) Appellant contends that the dissolution of the Coffeyville...